CHESTER City FC boss Terry Smith has resigned as Chairman - and warned that the club was now fighting for survival.

Mr Smith has stepped down and handed over all key decision-making powers to the board of directors, which will now look for a new chairman.

But he said yesterday that he would retain ownership of the club and work behind the scenes.

The revelation came as the club announced the appointment of former England and Manchester United winger Gordon Hill as director of football.

Hill will oversee the first team and the youth development programme in an administrative capacity, with manager Graham Barrow continuing his present role.

Mr Smith yesterday also warned that the club could fold if it was forced to comply with an order by the Football League to pay a #200,000 severence package to former player-manager Kevin Ratcliffe.

He and the former Everton star are locked in a dispute over a 'golden parachute' clause in Mr Ratcliffe's contract which is being contested by the club.

Mr Ratcliffe's solicitors have issued a winding-up order to the club in a bid to recover their money but Mr Smith has vowed to fight on in a higher court.

He will ask the Court of Appeal in London to intervene and overrule the Football League's decision to pay the one-time Welsh captain the money.

Mr Smith admitted that he hoped his resignation would help to deflect some of the fierce criticism directed at him by angry fans who have repeatedly called for him to hand the club over to them.

He said: 'I'm not a traditional sort of chairman who treats it as a hobby and shows up on match days.

'I have never liked that image - I come from a sports background and I am interested in winning.

'People have accused me of getting in the way, but I am just a worker like anyone else here at the club. The title of chairman has caused a lot of problems for me, so I have decided to drop that side of it. We are restructuring the whole club at the moment, so I don't yet know for certain what I will and will not be doing.

'But the directors will take on a lot of authority and I am not a member of the board.'

But, while he hoped the shake-up would usher in a new era for the club, he said it would not survive if Mr Ratcliffe's #200,000 claim was successful.

'I keep having to put my own money into the club to keep it going. I don't know how we could find that kind of money. It is already difficult enough to survive.' He said.

'I can't see how they could pay it and it certainly threatens the future of the club.'

Mr Ratcliffe invoked the get-out clause four weeks after Mr Smith took over the club in July, 1999. An appeal launched by Mr Smith has already been thrown out of the High Court after it ruled the dispute was something that could be settled between the parties and not by a panel of judges.

Mr Smith added: 'By taking the matter to the Court of Appeal, we are fighting for survival. If he chooses to wind it up, that's his decision.'

Despite his resignation, he vowed he would continue to resist calls from fans to hand over control of the club to a supporters' trust.

Mr Smith said: 'I put hundreds of thousands of pounds into this club, and now they want me to hand it over to them for nothing. A small radical group of supporters is trying to get control of the club, trying to undermine confidence and blame me for everything.'

But city Trust chairman Graham Ross said than fans would not be satisfied until Mr Smith left the Deva Stadium for good and agreed to hand over shares to supporters.